Reply to: Remortgage - Recommendations?

[GretaMacdonald]

By the looks of it, I think you need the help of the experts. When I was in the situation of buying and selling a house, I immediately decided to work with a solicitor to avoid any issues, especially legal ones. I found one on this comparison site of cheap mortgage solicitors, and when I started working with them, I learned that house selling and buying involves plenty of legal requirements such as preparing and signing of contracts. And for such reason, it’ll be better if you directly seek the assistance of professionals so they can give you the right advice. Remember not to hire just anybody you come across with to avoid being duped by fake solicitors!

[Power Mortgages Ltd]

Would I be right in saying we've also not mentioned that not all lenders will ignore the mortgage cost of a BTL when assessing a Residential value as well? Or did you say that and I'm just thick as mince?

I seem to remember my current vendor took in to account the mortgage payments for the BTL when figuring out how much to lend.

It will entirely depend upon which lender is the new lender (for the new purchase), what rental income you get for the buy to let and what the new buy to let mortgage payment is.

Some lenders just want to see the rental for that 'background' property is more than the mortgage payment, others want to know that it is 125% or even 145% of the mortgage payment you are making. Others will ignore what you are actually paying and calculate how much you would be paying on that buy to let mortgage if it was on a stress test rate of their choosing (normally 5.5%) and they will want the rental income to cover that (or 125%/145% of that) so it isn't very straight forward.

The only time your own personal income would have to be considered is if there was a shortfall in the above calculations and the rental income doesn't cover what it needs to. Normally whatever that shortfall is, it becomes a commitment which is deducted from affordability.

[northernladuk]

Whilst FF point out that the let to buy mortgage could be up to £187,500, this will wholly be dependant upon the rental income you will get for the property (as assessed by the lender who you would be remortgaging to) as the lender will need to understand that the mortgage will be 'self-funding'. Self funding is not as simple as the rental income>mortgage payment anymore. It will depend upon whether you are a higher tax rate payer or lower tax rate payer and whether you wish to go for a shorter term product like a 2 year tracker or fixed rate or a rate with a duration of 5 years and above, like a 5 year fixed rate. Different lenders work in different ways so it is a bit of a mine field out there researching which options would be available to you.

Would I be right in saying we've also not mentioned that not all lenders will ignore the mortgage cost of a BTL when assessing a Residential value as well? Or did you say that and I'm just thick as mince?

I seem to remember my current vendor took in to account the mortgage payments for the BTL when figuring out how much to lend.

[northernladuk]

Never done this before and very new to this concept.

Bet you thought this was going to be easy money didn't you

[Power Mortgages Ltd]

A point to note is that the amount you are able to remortgage your current property up to will also depend upon the rental income your current property is likely to achieve.

Whilst FF point out that the let to buy mortgage could be up to £187,500, this will wholly be dependant upon the rental income you will get for the property (as assessed by the lender who you would be remortgaging to) as the lender will need to understand that the mortgage will be 'self-funding'. Self funding is not as simple as the rental income>mortgage payment anymore. It will depend upon whether you are a higher tax rate payer or lower tax rate payer and whether you wish to go for a shorter term product like a 2 year tracker or fixed rate or a rate with a duration of 5 years and above, like a 5 year fixed rate. Different lenders work in different ways so it is a bit of a mine field out there researching which options would be available to you.

As already mentioned, there is no way around the additional 3% stamp duty you would have to pay if you are opting to keep your current property to let out. However, contrary to what someone has mentioned earlier in the thread, it is actually 3 years you have to sell your current property (if that is what you intend to do) to then be able to reclaim that additional 3% stamp duty you paid from HMRC. A purchase of £275,000 ordinarily would incur stamp duty of £3,750 however as you will be subject to the additional 3% (£8,250 on £275,000) your total stamp duty liability would be £12,000.

It would also be prudent to speak to an Accountant about the taxation changes for rental income which are being phased in at the moment because as of 2021 when they are fully phased in, you will not be able to write off any of the mortgage interest against tax as an expense as you have been able to do so previously meaning that large rental incomes will have more of an impact on your personal taxes.

Hope that helps?

[Freelancer Financials]

Thank you. The 2nd property can be my main residence if there is an option to reduce Stamp Duty (while the current main residence will be let out). Location wise they are very near by - just 50ft.

The reason for equity release is to fulfil the deposit needed (30% LTV) so that it will get a good interest rate.

My current Cash Warchest is good but cannot be used for this. I have invested my savings on a property elsewhere, so I need to raise money for deposit.

If that is the scenario, then what you need is a Let to Buy mortgage on your existing property upto 75% LTV (£250,000 x 0.75 = £187,500 less £40,000 balance = £147,500). That would raise £147,000.00 towards the 2nd property (which would be a residential mortgage). The 2nd property is valued at £275,000 which would mean you need a second mortgage for £127,500.00

That would get you a very competitive residential rate as your LTV would be less than 50% on the second property. And as I said on the earlier thread, you would have to pay the higher stamp duty
as this is a second house purchase. So in effect you will end up haveing two separate mortgages, a LTB for £147,500 and Residential for £127,500. I hope that helps.

[Freelancer Financials]

There is no way to avoid the increased stamp duty unless you sell your primary place of residence.

Additional stamp duty starts at 3% and increases as per the normal thresholds

That's correct, you will have to pay the higher stamp duty irrespective whether you move into the second house and let the first one. There is no getting away from that.

[WTFH]

Probably I should have said "I don't want to use it for this" :-) - just to have a cash buffer that can be accessed instantly. After all, anything can happen in contracting.

Phew, I just wanted to check. Some people have a "warchest" but then you find out it's locked into 5 year no access investment, at which point it's not a warchest, but money that is not available.

[BoredBloke]

I did exactly this last year. As others have said, what you need is a mortgage on a second property. The deals for the second properties are often not the best and they tend to want bigger deposits. In the end we got our through the Clydesdale bank - 10% deposit and fixed for 2 years. Think it was at 2%. At the time I wasn't too fussed about the rate as I just needed the property. They will allow you to fix for longer, but this will probably be a BTL in the coming years. With the amount it has increased in value (based on what an identical flat went for in the building a couple of months ago) and how much we've paid down, our equity should be about 25% by the time we have to remortgage.

We initially went through a broker but what we were offered wasn't suitable as our max deposit was about 15%. So I approached Clydesdale direct. They were a doddle to deal with. everything done over the phone & email. Pretty contractor friendly also. My earnings were assessed based on my salary, dividends and expenses.

Regarding the stamp duty, that's a pain and difficult to get around. However, if you sell one of your properties within 18 months of purchase, you can get it back....supposedly! The flat is in Scotland so perhaps this only applies up here. Not an issue for us as we won't be selling.

[northernladuk]

Probably I should have said "I don't want to use it for this" :-) - just to have a cash buffer that can be accessed instantly. After all, anything can happen in contracting.

And very sensible. I've seen a number of contractors dip in to their warchest and get caught out. Many moons ago on here NWP2C dipped in to his warchest to renovate his house and had a bit of a wobble but luckily got end to end gigs.

[BigDataPro]

Why not?

I can understand someone saying "I don't want to use it for this", but to say "it cannot be used" - what's the reason?

Probably I should have said "I don't want to use it for this" :-) - just to have a cash buffer that can be accessed instantly. After all, anything can happen in contracting.

[PurpleBA]

I have just done this same thing and found a local mortgage adviser, who has great experience with contractors, so you don't always need a specialist. I ended up releasing a sum out of my current property, changed it to a let to buy and got an onward purchase - all with a high street lender at a rate lower than what I had seen anywhere else (and lower than what my current lender would do). Something like your situation can entice a lender to do a deal.

[WTFH]

My current Cash Warchest is good but cannot be used for this.

Why not?

I can understand someone saying "I don't want to use it for this", but to say "it cannot be used" - what's the reason?

[dogz111]

Thank you. The 2nd property can be my main residence if there is an option to reduce Stamp Duty (while the current main residence will be let out). Location wise they are very near by - just 50ft.

The reason for equity release is to fulfil the deposit needed (30% LTV) so that it will get a good interest rate.

My current Cash Warchest is good but cannot be used for this. I have invested my savings on a property elsewhere, so I need to raise money for deposit.

There is no way to avoid the increased stamp duty unless you sell your primary place of residence.

Additional stamp duty starts at 3% and increases as per the normal thresholds

[BigDataPro]

Thank you. The 2nd property can be my main residence if there is an option to reduce Stamp Duty (while the current main residence will be let out). Location wise they are very near by - just 50ft.

The reason for equity release is to fulfil the deposit needed (30% LTV) so that it will get a good interest rate.

My current Cash Warchest is good but cannot be used for this. I have invested my savings on a property elsewhere, so I need to raise money for deposit.